If you're new to investing, you've likely wondered: what are dividends? Dividends are a portion of a company’s profits that is distributed to shareholders. By purchasing shares, you become a part-owner of the company. When it performs well and generates profit, it may decide to reward investors through a dividend payment.
This payment is usually made in cash but can sometimes be offered as additional shares. Dividends are often seen as a sign of financial health. Companies that distribute them regularly tend to be well-established and profitable.
That said, not every company pays dividends. Startups and high-growth firms often reinvest their earnings to fuel expansion instead of distributing them to shareholders.
The frequency varies by company and country. In Switzerland, major companies like Nestlé, Novartis, and Zurich Insurance typically pay dividends once a year, after their annual general meeting. In the United States, quarterly dividends are far more common.
Some companies even pay monthly dividends, offering more frequent income for investors. A well-known example is Realty Income, a firm that has built its identity on monthly distributions. You can find regularly updated lists of monthly dividend stocks on websites like Dividend.com.
In Switzerland, dividends are considered capital income and must be declared in your annual tax return. Most are subject to tax, but some may be tax-exempt if they are paid from capital contribution reserves.
Additionally, there is a 35% withholding tax applied at the source. If you are a Swiss tax resident, you can reclaim this amount fully or partially through your tax declaration.
Dividends are a key source of passive income. Even if a stock doesn't gain value, regular payouts provide investors with a tangible return. For many, this is a way to earn money consistently without selling assets.
Many investors choose to reinvest their dividends, purchasing more shares and leveraging the power of compound interest. Over time, this strategy can significantly grow your portfolio.
Furthermore, companies with consistent dividend policies are often seen as more stable and resilient. In times of economic uncertainty, they offer a level of reassurance. For anyone building a balanced, long-term investment strategy, dividend-paying stocks can be a valuable component.